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post-title Legal protections offered by a limited liability company in Singapore

Legal protections offered by a limited liability company in Singapore

Last modified: August 16, 2018

Legal protections offered by a limited liability company in Singapore

Legal protections offered by a limited liability company in Singapore

A Limited Liability Company (LLC) is a company limited by shares i.e. its liabilities are limited to the amount of share capital. LLC is a business entity registered under the Singapore Companies Act and a separate legal entity from its members. In a LLC, the liabilities of the owners are limited to the assets in the company and their personal assets are protected from business liabilities.

The costs involved in incorporating a company in Singapore is very low compared to what they are in other countries. In view of the above benefits mentioned it is worthwhile to opt for Incorporation of a Limited Liability Company.

Why Is Asset Protection Important?

The goal of a comprehensive asset-protection plan is to significantly reduce risks by insulating your business and personal assets from the claims of creditors. Unfortunately, if you’re like most small-business owners, you are unaware of all the potential risks to your business and the options available to protect your business and personal assets. An asset-protection plan employs legal strategies, put into place before a lawsuit, that can deter a potential claimant or help prevent the seizure of your assets after a judgment. If you haven’t already put your asset-protection plan in place, don’t wait – the longer your plan has been in existence, the stronger it likely will be.

Strategies used in asset-protection planning include having separate legal structures, such as corporations, partnerships and trusts. The structure most suitable for your business depends mostly on the kinds of assets you own and the types of creditors you have.

The following are 2 general types of claims that can be made against you. For asset protection, it’s important to know the difference.

Internal claims – arise from creditors whose remedy is limited to assets of a particular entity, such as a corporation. For example, if you have a corporation which owns a piece of real estate and someone slips and falls on the property, the injured party is limited to pursuing the corporation’s assets (i.e., the real estate) and not your personal assets. This is under the assumption that you did not cause the injury.

External claims – are not limited to the assets of the entity, but can extend to your personal assets as well. For instance, if the same corporation owned a truck which you negligently drove into a pedestrian, the injured could sue and receive compensation using both the corporation’s assets and yours.

Corporation

Corporation is a type of business structure created in accordance with state law. Legal ownership of the corporation is shared among its shareholders. Generally, each shareholder is entitled to elect a board of directors to oversee the business. The board of directors then appoint personnel for key managerial positions (the president, secretary and treasurer), who are charged with the day-to-day operation of the business.

There are several types of corporations that are used to protect assets: business or C corporations, S corporations and limited liability companies (LLCs). Corporations is a popular choice used to protect assets because it limits liability. Managers have no personal liability for corporate debts, breaches of contract or personal injuries to third parties caused by the corporation or employees. While the corporation may be liable or responsible, a creditor is limited to pursuing only corporate assets to satisfy a claim. This protection from personal liability distinguishes the corporation from other entities, such as partnerships or trusts.

 

Limited Liability Corporations

Due to the added formalities imposed on S corporations, a newer entity has evolved, which affords similar liability protection to corporate principals as a C corporation and the same “pass-through” tax treatment of S corporations, but without the formalities and restrictions associated with an LLC.

 

General Partnership

A general partnership is a group of 2 or more parties doing business together. This agreement can be written or oral. As an asset-protection tool, a general partnership is one of the least useful arrangements because each partner is personally liable for all of the debts of the partnership, including debts incurred by other partners on behalf of the partnership. Any one partner can act on behalf of the other partners with or without their knowledge and consent.

This feature of unlimited liability contrasts with the limited liability of the owners of a corporation. Not only is a partner liable for contracts entered into by other partners, but each partner is also liable for the other partner’s negligence. In addition, each partner is personally liable for the entire amount of any partnership obligation.

Limited Partnership

A limited partnership (LP) is authorized by state law and consists of one or more general partners or limited partners. The same person can be both a general partner and a limited partner, as long as there are at least 2 separate persons or entities, such as a corporation who are partners in the partnership. The general partner is responsible for the management of the affairs of the partnership and has unlimited personal liability for all partnership debts and obligations.

Limited partners have no personal liability for the debts and obligations of the partnership beyond their contributions to the partnership. Because of this protection, limited partners also have little control over the day-to-day management of the partnership. If a limited partner assumes an active role in management, that partner may lose his or her limited liability protection and be treated as a general partner. This restricted control over the partnership business diminishes the value of limited-partnership shares.

Trusts

A trust is an agreement between the person creating the trust (referred to as the settler, trustor, or grantor) and the person responsible for managing the assets of the trust (the trustee). The trust provides that the grantor will transfer certain assets to the trustee, who will hold and manage the assets in trust for the benefit of another person, called the beneficiary. A trust created during the life of the grantor (an inter-vivos trust) is also called a living trust, while a trust created at the death of the grantor through a will or living trust is referred to as a testamentary trust.

 

Selecting the Right Asset-Protection Vehicle

If you own a professional practice or business, your risk and liability for claims is high, making this type of business a dangerous asset. Incorporating your business or practice long has been considered the best way to insulate your personal assets from liability and seizure resulting from claims against your business. However, the limited liability company is quickly replacing the standard business or C corporation as the asset-protection entity of choice.

Nevertheless, in many states, certain types of business professionals cannot afford all of the protections offered by the LLC. Professionals, such as doctors, lawyers, dentists and psychiatrists, to name a few, can’t shield themselves from liability with either an LLC or a corporation for claims directly arising from their actions or inactions.

If the business entity cannot protect you personally, consider sheltering your personal assets in other entities, such as a family limited partnership (FLP), a trust or an LLC. Then, even if you are sued personally, at least some of your personal assets are protected within one or a combination of these entities, discouraging creditors from pursuing them.

A final note for professional practice or business owners: it is still worth your while to incorporate either with a C corporation or an LLC. While these business entities may not protect you from malpractice claims, they will shelter you from financial obligations of the corporation, unless you personally guarantee the debt. You also may be protected from most other claims of the business not directly related to your actions as a professional, such as claims of employees, suppliers, landlords or tenants.

 

 

 

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